Economy with a fixed exchange rate system

Reference no: EM1374517

Think a small open economy with a fixed exchange rate system. Assume there is a general expectation that central bank will revalue the domestic currency in the future (i.e. it will decrease the fixed exchange rate defined as the amount of the domestic currency per unit of foreign currency). Explain the short run effects of this on the economy. Use the appropriate graph to illustrate your discussion.

Reference no: EM1374517

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